Asian Shares Decline, Trump Tariffs Spook Pharma: Markets Wrap

(Bloomberg) — Asian stocks retreated as concerns about lofty valuations and mixed signals from Federal Reserve officials on interest rates stalled a record-breaking rally on Wall Street.

The MSCI Asia Pacific Index fell 0.5% after the S&P 500 dropped for a third session, the longest slide in a month. Daiichi Sankyo Co. and Astellas Pharma Inc. were among the losers as President Donald Trump announced a fresh round of tariffs, including a 100% levy on branded or patented pharmaceutical products. S&P 500 futures erased earlier gains to trade little changed.

After a $15 trillion rebound in global equities from April’s lows, traders now face a wall of uncertainty as tariff headlines return to weigh on markets. The Fed’s next policy move, a pivotal earnings season, and the threat of a US government shutdown are also weighing on sentiment. Attention now turns to Friday’s inflation report after strong US GDP data complicated the outlook for further rate cuts.

“This refreshed threat on pharma has been brought up by Trump several times as a negotiation tool,” said Anna Wu, cross-asset strategist at VanEck Associates Corp. in Sydney. “I expect this to weigh on the health care sector and broader sentiment in global equities, including Asian markets.”

Treasuries steadied as yields at the short end rose Thursday after US gross domestic product grew at the fastest pace in nearly two years.

Following the rally, the S&P 500’s 12-month forward price-to-earnings ratio recently touched a high of 22.9, a level that this century was exceeded in just two prior instances: the dot-com bust and the pandemic rally in the summer of 2020 when the Fed reduced rates to near zero.

“We agree that the economy is strong and growing,” said Chris Zaccarelli at Northlight Asset Management, “but a lot of that good news is already priced in. Where we have our largest concern is with valuations.”

What Bloomberg strategists say…

Trump’s renewed tariff salvos are likely to set up a challenging day for assets in India and Europe. US equities may shrug off the levies. Investors for now will focus on sectoral and non-US impacts for fresh tariff announcements, rather than driving down the price of US assets the way they did in the first half.

—Garfield Reynolds, MLIV Asia Team Leader. Click here for full analysis.

Money markets slightly reduced bets on rate cuts after the GDP data, projecting about 40 basis points of Fed reductions before the year is over. Divisions within the Fed over the path of rates added to the uncertainty.

Fed Governor Stephen Miran said the US central bank risks damage to the economy by not moving rapidly to lower interest rates, dissenting against the decision to lower rates last week by a quarter percentage point, favoring a half-point cut.

“I don’t think the economy is about to crater,” Miran said Thursday on Bloomberg Surveillance. But given the risks, “I would rather act proactively and lower rates as a result ahead of time, rather than wait for some giant catastrophe to occur,” he said.

Michelle Bowman, the Fed’s top bank cop, said inflation is close enough to the central bank’s target to justify more rate cuts because the job market is weakening.

Fed Bank of Chicago President Austan Goolsbee expressed continued concern about tariff-driven inflation and pushed back against any call for “front-loading” multiple rate cuts. His Kansas City counterpart Jeff Schmid signaled the central bank may not need to cut again soon.

Fed Bank of Dallas President Lorie Logan said the US central bank should abandon the federal funds rate as its benchmark in implementing monetary policy, and consider an overnight rate tied to the more robust market for loans collateralized by US Treasuries.

Investors will now turn their focus to Friday’s inflation data. The Fed’s preferred gauge of underlying inflation likely grew at a slower pace last month, offering policymakers some breathing room to address jobs cooling.

A report on Friday is forecast to show the personal consumption expenditures price index excluding food and energy rose 0.2% in August, compared with 0.3% in July. On an annual basis, the so-called core measure is seen holding at a still-elevated 2.9%.

Corporate News:

Trump advanced plans for American investors to buy TikTok’s US operations from its Chinese owner ByteDance Ltd., with officials setting a potential value of $14 billion. Xiaomi’s latest flagship smartphone may deliver better-than-expected sales performance and help the company penetrate further into the premium phone segment, market watchers say. Baidu Inc. is exploring new markets including Australia for its robotaxis as its expanding fleet hits operational profitability targets in several cities across China. Hanwha Aerospace and other Asian defense shares advance after European diplomats privately told Russia that NATO is prepared to shoot down Russian planes that violate its airspace. Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 10:55 a.m. Tokyo time Japan’s Topix rose 0.6% Australia’s S&P/ASX 200 was little changed Hong Kong’s Hang Seng fell 0.8% The Shanghai Composite fell 0.3% Euro Stoxx 50 futures rose 0.4% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1667 The Japanese yen was little changed at 149.83 per dollar The offshore yuan was little changed at 7.1446 per dollar Cryptocurrencies

Bitcoin rose 0.5% to $109,718 Ether rose 1.6% to $3,948.85 Bonds

The yield on 10-year Treasuries advanced one basis point to 4.18% Japan’s 10-year yield was unchanged at 1.640% Australia’s 10-year yield advanced four basis points to 4.38% Commodities

West Texas Intermediate crude rose 0.5% to $65.32 a barrel Spot gold fell 0.2% to $3,740.11 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Abhishek Vishnoi.

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